NEW YORK (MarketWatch) — Pharmacy-benefits manager Medco Health Solutions Inc. on Tuesday said it agreed to acquire PolyMedica Corp. for $1.5 billion, in a move to gain a stronghold in the fast-growing market for diabetes care.
will pay PolyMedica
shareholders $53 a share in cash, a 17% premium over PolyMedica’s Monday closing price of $45.29.
Shares of Wakefield, Mass.-based PolyMedica rocketed 14% to $51.71 in midday trading. Medco shares were up marginally at $86.25.
“PolyMedica has developed a deep expertise and focus in diabetes care and, through the Liberty brand, excels at attracting seniors to their high-value mail-order pharmacy,” said David Snow Jr., Medco’s chairman and chief executive.
In addition to providing prescription benefit services, Medco is also one of the industry’s largest mail-order pharmacies. After acquiring Accredo Health in 2005, it also became a leading player in the management of patients with complex drug regimens.
PolyMedica, meanwhile, is the U.S.’s largest supplier of blood sugar testing products, with a focus on home delivery. The company, which also dispenses diabetes drugs, has almost 1 million customers.
An estimated 17 million Americans are currently treated for diabetes, Medco said, with more than 1 million patients diagnosed each year. An additional 7 million are estimated as undiagnosed.
Diabetes care represents one of the fastest-growing segments of health care in a market estimated at more than $25 billion a year, Medco said. Diabetes patients represent 5% of the population, but account for more than 15% of total drug spending.
Medco said it currently manages more than $6.5 billion in drug spending related to its 2.8 million patients under treatment for diabetes. The PolyMedica deal brings 1 million members under care and creates the nation’s most advanced large-scale practice focused on diabetes-related pharmacy care.
Snow said Medco’s shareholders will benefit from incremental earnings growth as a result of the deal, which is expected to add slightly to 2008 earnings.
and PolyMedica began collaborating in 2006. Currently, Medco fulfills more than 50,000 prescriptions per week for PolyMedica’s patients.
The deal, which is expected to close late this year, has been unanimously approved by the boards of directors of both companies, and is subject to the approval of PolyMedica shareholders and other customary closing conditions.
Analysts on Tuesday greeted news of the deal positively.
“It (PolyMedica) fits strategically with Medco CEO David Snow’s focus on consumerism and his current build out of therapeutic resource centers focused on driving compliance with members with chronic diseases,” wrote Medco analysts at Goldman Sachs, in their note Tuesday.
“Additionally, Medco and PolyMedica have already been collaborating since 2006 with Medco fulfilling PolyMedica Part D pharmaceutical business and PolyMedica providing Part B administrative services and supplies to some Medco clients,” the analysts continued.
“We view it as a longer term strategic acquisition for Medco as it looks for ways to build the business to capture the move in healthcare towards consumerism and disease management,” the Goldman Sachs analysts added.
Analysts at Lehman Brothers were also optimistic.
“We’d define this acquisition by Medco as a logical effort to further broaden the company’s delivery platform, highlighting the importance of servicing the diabetic population,” they wrote, in their note Tuesday.
“We’d categorize PolyMedica as a relatively small but important addition to the Medco platform,” the Lehman analysts added.
Lazard served as Medco’s financial advisor and Sullivan & Cromwell acted as Medco’s primary external legal counsel; Deutsche Bank represented PolyMedica in the transaction and Weil, Gotshal & Manges acted as PolyMedica’s legal counsel.
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